Yet another loyalty program trap: airline companion tickets

In the last few weeks I've done a bit of a deep dive into the annual free night certificates offered by various co-branded hotel credit cards (IHG (and here), Marriott, Hyatt), with the general theme that a single annual free night certificate has to be looked at in the framework of your overall miles, points, and travel strategy.

For example, a $75 Hyatt free night certificate can either save you 8,000 Ultimate Rewards points if redeemed as part of a short Category 2 stay (good deal!), or cost you tens of thousands of Ultimate Rewards points if you let its presence in your account convince you to spend your vacation at a Category 4 Hyatt property rather than, for example, a Club Carlson property where your last night (or every other night, depending on your credit card portfolio) is free.

In other words, it's not enough to say the Hyatt Visa Signature credit card gives a free night when you pay the $75 annual fee. That "free" night might be very cheap or very expensive, depending on your travel plans and overall miles and points strategy.

Are airline companion tickets too good to be true?

Many airline co-branded credit cards offer an annual companion ticket, which are (with a few important exceptions) valid for economy travel in the continental United States and Canada, on flights operated by the issuing airline (excluding their partners and, in US Airways' case, their own sister airline American).

Here's a quick glance at some of those companion tickets:

• Barclaycard US Airways MasterCard (for new and current cardholders in 2015 only): $99 plus taxes and fees for each of up to two companions traveling with the cardholder, when the cardholder purchases an economy ticket fare of $250 or more. Valid in the continental United States and Canada. $89 annual fee. You must pay with your US Airways MasterCard.
• Barclaycard American Airlines Aviator Silver MasterCard (beginning in the second quarter of 2015): $99 plus taxes and fees for each of up to two companions traveling with the cardholder, when the cardholder purchases a ticket for $250 or more. The cardholder must spend $30,000 each cardmember year to receive the companion tickets. $195 annual fee.
• Bank of America Alaska Airlines Visa Signature: $121 for one companion to travel with the cardholder, when the cardholder purchases any economy ticket. Valid systemwide on flights operated by Alaska Airlines. $75 annual fee. The primary cardholder must be traveling or the ticket must be booked with a card in the primary cardholder's name.
• American Express Delta Platinum (economy) and Reserve (economy or first): pay only the taxes and fees for your companion when purchasing a ticket in eligible fare classes. Valid in the continental United States and Canada, except for residents of Hawaii, who can originate there. $195 (Platinum) or $450 (Reserve) annual fee. The terms and conditions state that the ticket must be paid for with your American Express Delta Platinum or Reserve card, although a reader reported that he was able to use a different American Express card.
• Chase British Airways Visa: you pay only the taxes, fees, and fuel surcharges for a second award ticket in any class of service booked entirely on British Airways-operated flights, originating in the United States. $95 annual fee. The primary cardholder must be traveling.

Who are companion tickets right for?

I often write that there are only two reasons to even consider using travel-rewards-earning credit cards, rather than earning a straight 2% cash back using a card like the Fidelity Investment Rewards American Express:

• You travel for work and have reimbursable business expenses;
• Or you manufacture spend furiously.

That's because even if you (not unreasonably) value Membership Rewards, Ultimate Rewards, or Citi ThankYou points at more than 1 cent each, you have to earn a huge number of them to "make up" the $95, $175, or $450 annual fees incurred by premium rewards-earning credit cards.

The same logic applies to companion tickets. If you're reimbursed by your business or employer for your travel expenses, then the annual fees of these credit cards really might be cheap methods for bringing a travel companion on a domestic trip with you.

That's because when the cost of the revenue ticket is taken out of the equation, the credit card annual fees may be a relatively small fraction of the cost of paying for a second revenue ticket: $217 (Delta Platinum) is 25% of a $868 ticket, $210 (US Airways) is 25% of a $840 ticket, $196 (Alaska) is 25% of a $784 ticket. While those hypothetical prices are currently high for leisure fares (I haven't paid $784 for a domestic ticket in years), if your travel companion wants to come with you on a route heavy with business travelers, they're not inconceivable.

The problem with companion tickets

With that out of the way we can come to the crux of the problem: companion tickets are a bad deal because they require you to purchase a revenue ticket directly from the airline.

And if you're a travel hacker, that's vanishingly unlikely to be the cheapest method of buying tickets — even revenue tickets. Leaving award tickets completely aside, here are a handful of straightforward methods for buying revenue tickets on the cheap:

• Redeem US Bank Flexpoints at up to 2 cents each, earned at up to 3 Flexpoints per dollar spent on charity. Maximum discount: 83.3%.
• Redeem Citi ThankYou points at up to 1.6 cents each on American Airlines or US Airways flights, earned at up to 3 ThankYou points per dollar spent at gas stations. Maximum discount: 83.7%.
• Redeem Chase Ultimate Rewards points at up to 1.25 cents each, earned at up to 5 Ultimate Rewards points per dollar spent at office supply stores. Maximum discount: 46.3%.

Compare that to a revenue ticket purchased directly from the airline, and a companion ticket paid for with your annual fee plus any required taxes, fees, or co-pays. Even the unusually high prices I cited above (with savings of 75% on the companion ticket compared to revenue fares) produce savings of just 37.5% when you're forced to buy the first ticket at retail price.

Exceptions worth considering

While the Bank of America Alaska Airlines companion ticket and the British Airways Travel Together ticket do have to be booked directly with their respective airlines (over the phone, in both cases), the terms and conditions of the tickets do not require them to be booked with the corresponding credit card. That means you can use a Barclaycard Arrival+ card to pay for both tickets, potentially securing a discount comparable to what you'd get booking using a more lucrative points currency.

Personally I prefer to use my Arrival+ miles for non-chain hotels and taxi and Uber rides, but if you're earning them cheaply enough, an Alaska Airlines or British Airways companion ticket might make sense — again, depending on your own miles and points strategy.

US Airways anniversary miles (and affiliate bloggers acting shamelessly)

I've long said that the only question that mattered - and the one that was being studiously ignored by affiliate bloggers - about the Barclaycard US Airways MasterCard is what will happen to the card's anniversary miles.

Applications for the card before the US Airways-American Airlines merger was completed offered 10,000 Dividend Miles that post on each account anniversary. Affiliate links released since the merger, that is to say, the applications you see on sites like Boarding Area and The Points Guy, have not included those anniversary miles.

Meanwhile, "zombie" applications continued to be available which did offer the 10,000 anniversary miles, and which were studiously ignored by bloggers who were paid for those referrals.

The difference matters because, while the newer applications tend to have higher up-front signup bonuses, those anniversary miles can make the card worth keeping after the first year, especially since Barclaycard is notoriously generous about giving annual fee waivers upon a quick phone call.

It has now been confirmed by Barclaycard that those of us who applied under what I call the "and every anniversary thereafter" version of the offer will continue, for now, to receive our anniversary miles.

Affiliate bloggers have no shame

I get things wrong sometimes. That's not something I relish, but it's something I've come to terms with, and when I do, I admit my mistakes, accept criticism, and try to mend my ways.

When affiliate bloggers get things wrong, they write gleeful posts ignoring their humiliating mistakes, which has never been demonstrated as clearly as their reactions today to the news that they have been screwing their readers for months by linking to inferior, non-anniversary US Airways offers.

Remember I shared a working link to an "and every anniversary thereafter" offer on April 30, 2014.

Here's a Mommy Points post on April 30, 2014 linking only to the non-anniversary version of the offer. And here was her priceless reaction to today's Barclaycard announcement:

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Note the word "My" in her tweet: her card will award her 10,000 bonus miles because when it comes to her own cards, she looks out for her best interests. Of course, when it comes to her readers she also looks out for her own best interests.

Likewise on April 30, 2014, The Points Guy wrote up the same offer, again without linking to the "and every anniversary thereafter" offer (an oversight we proceeded to debate on Twitter).

After the announcement today, he wrote blandly that "current cardholders will continue to receive the annual 10,000 Dividend Miles." This is, of course, not strictly true, since anyone who followed his advice and signed up using a non-anniversary application will not receive the anniversary miles.

Finally, again on April 30, 2014, the same day I conveniently provided a link to the "and every anniversary thereafter" offer, Gary Leff wrote up his affiliate link without mentioning the existence of the other application.

And – prepare yourself – his post today celebrates the anniversary miles he'll continue to receive, without acknowledging that he deliberately kept his readers in the dark for months about how to earn them.

Conclusion

I don't think a person who needed a quick influx of US Airways miles would necessarily have been wrong to privilege a 40,000-mile offer that charged the $89 annual fee up front over a 30,000-mile, waived-annual-fee offer that offers anniversary miles.

But the shameless promotion of money-making links, the shameless concealing of other, potentially better offers, and then the inevitable denial that that's exactly what took place, does drive me nuts. It shouldn't, but it does. And today's examples were among the most egregious I've seen in some time.

Post-script

Incidentally, it would be interesting to know whether those who applied under the no-anniversary-miles version of the card application received the same e-mail confirming the continuation of anniversary miles. It doesn't seem likely, since Barclaycard has relatively good IT in my experience, but I think there's a non-zero possibility Barclaycard incorrectly classified at least some of those applications. So if you recently applied for that offer, leave a comment and let me know if you've heard from Barclaycard regarding anniversary miles.

The question that matters about the US Airways credit card

Signup bonuses play a vanishingly small role in my miles and points strategy. They consume, on the other hand, approximately 95% of the the attention of most miles and points bloggers, one reason I scarcely read any other bloggers these days. It's trivially easy to manufacture 100,000 American AAdvantage miles should you foresee a need for them, while most bloggers will tell you only a madman would forego the chance to "opportunistically" acquire them at a cost of just $250. Then, as if to emphasize the absurdity, they spill even more ink over a 5,000 Starpoint increase in the signup bonus for the American Express Starwood Preferred Guest card!

Ongoing benefits (like companion tickets) and lucrative bonus categories are miles ahead of signup bonuses in my decision making.

So in all the supposed "assessments" of changes to the Barclaycard US Airways MasterCard after the merger with American Airlines is completed (for example see here, here, here) I always look for one piece of information that's invariably missing: what's going to happen to the 10,000 miles anniversary bonus offered by the US Airways MasterCard once it becomes an AAdvantage card?

Barclaycard hasn't made a decision yet

It's clear that if Barclaycard had made a decision about what's going to happen to the "anniversary mile" version of the card, they would have shared it. In fact, they've already mailed out an update on what changes will be made to the card's ongoing benefits (eliminating the card's companion ticket and 5,000 mile discount on award bookings, most notably).

But they haven't shared what's going to happen to the anniversary miles.

Barclaycard wrote oddly specific terms and conditions

Let me preface this by saying the terms and conditions of the US Airways MasterCard include the same language found on all such documents:

"The APRs, fees, and other account terms, as well as the benefits and features associated with the account are subject to change to the extent permitted by law."

That being said, the language related to the anniversary miles is extremely specific:

"Anniversary Bonus Miles: Beginning with the first anniversary of Account opening and every anniversary thereafter, Cardmembers will be awarded 10,000 Anniversary Miles."

Barclaycard has a very expensive team of lawyers

If Barclaycard believed that they could eliminate the anniversary bonus miles without legal risk, they would do so. The fact that they claim not to have made a decision yet is strongly dispositive to me that they believe they do not have the ability to eliminate the anniversary bonus miles for cardholders who signed up for the card under that offer.

Credit card contracts are different than loyalty program terms and conditions

Loyalty program terms and conditions as written today have a plethora of conditions that protect the provider from any legal liability for future enhancements (devaluations) to the program.

Credit card terms and conditions, on the other hand, are real contracts entered into between customers and banks for mutual benefit, and there are substantially more restrictions on the kinds of changes that can be made to them, with or without notice.

Further, Barclaycard is bound by state consumer protection laws and would be vulnerable to claims in every state they have cardholders if they were to make a change they didn't believe was airtight from their lawyer's point of view.

Conclusion

I don't know anything more than anyone else pontificating about the coming changes to the US Airways credit card. But whenever you see an article purporting to explain those changes, now you know what to look for: does the author have any additional information about the anniversary miles, or are they just reciting their Barclaycard-approved talking points?

American and US Airways award discounts

As I've mentioned, in January I was approved for both the Citi Platinum Select / AAdvantage World MasterCard and Barclaycard US Airways MasterCard. Having met the minimum spending requirements for both cards, I paid them off and stuck them in a drawer.

Of course, now I've got all those miles on my hands! Since I have an expensive domestic roundtrip coming up in March, I thought I'd check out what kind of award availability the airlines had on the dates I needed (hint: not much!).

That got me to wondering about the award discounts offered by the two airlines to their co-branded credit card holders. I found it intensely confusing, so I thought I'd throw up a quick summary in case any of my readers recently signed up for the same cards.

American Airlines: 10% mileage rebate & reduced mileage awards

There are two kinds of discounts you get as a Citi / AAdvantage cardholder. First, there's a 10% mileage rebate on all the miles you redeem out of your account each calendar month, up to 10,000 total miles (on 100,000 in mileage redemptions). Second, there are "reduced mileage awards" which are offered to a changing list of (domestic) destinations throughout the year. That program is clearly decided to be as difficult to take advantage of as possible: you need to look up the eligible cities for each month, copy down the code, and input it when making your award reservation.

Oddly, the terms and conditions of the 10% rebate program don't even require these redemptions to be for flights, so if you find a good redemption for hotels or car rentals, or if you redeem your miles for an Admiral Club membership, you should receive the rebate on those redemptions as well (I don't know how this works in practice).

Finally, for bookings made through February 27 for flights through April 4, there's another active promotion whereby non-stop MileSAAver economy award flights between Los Angeles and cities in the continental United States, and all MileSAAver economy award trips between Las Vegas and cities in the continental United States cost 10,000 AAdvantage miles each way, instead of 12,500. The 10% mileage rebate should apply to the final (post-discount) cost of each flight.

US Airways: 5,000 mile award discount

When you're a Barclaycard US Airways cardholder in good standing, you are designated "Dividend Miles Select." As far as I can tell the only benefit of that "status" is that you receive a flat, 5,000 Dividend Mile discount on all US Airways-operated flights.

I'm not going to lie, I've been messing around on US Airways' website for the last hour and I cannot for the life of me get the 5,000 mile discount to apply to any award tickets. Presumably if I actually wanted to book an award I could call in and have a phone agent apply the discount.

Analysis

The added wrinkle in all this is that starting a few weeks ago, you've been able to use American miles to make award reservations on US Airways, and vice versa. That means that it's possible to receive a 10% discount on US Airways award reservations by making the reservation through your American AAdvantage account. So when deciding which account to make a reservation through, you need to ask yourself the following questions:

• Have I already received 10,000 miles through the AAdvantage rebate program this calendar year? If so, you won't receive any additional discount this calendar year.
• Is this award ticket operated entirely on US Airways aircraft? If not, it's not eligible for the 5,000 mile discount.
• If it is operated entirely by US Airways, is it more or fewer than 50,000 Dividend Miles? If it's more, you'll be better off using AAdvantage miles. If it's fewer, use your 5,000 Dividend Mile discount and save your rebate headroom for a more expensive redemption.

Finally, consider checked bag fees. The US Airways MasterCard famously does not include free checked bags, while the AAdvantage card does. American's website currently has the following helpful information:

"Q: Do the First Bag Checked Free Waiver and Group 1 Boarding (or Priority Boarding) benefits on select Citi®/AAdvantage® cards apply to US Airways flights?

"A: Not at this time. These benefits will not be available for travel on any US Airways flights, including any codeshare flights."

That means that if you're deciding specifically between American-operated and US-operated flights, booking the American flight with a 10% discount may be more economical than booking the US Airways flight with a 5,000 mile discount; it depends on whether the difference in miles is worth more or less than the $50 you'll pay roundtrip per first checked bag and $70 per second checked bag on US Airways.

Confused yet? Me too. Let me know in the comments if I'm missing anything obvious.

Quick update: my impromptu January application cycle

[update 1/11/14: I never got around to calling Chase about my British Airways application, but today I saw that it had been added to my online accounts with a $2,000 credit line.]

Yesterday I announced that in honor of the 5% cash back "old" Blue Cash card still being available, I was moving my next round of applications up from the beginning of February. That meant scrounging around for the best, currently-available, signup bonuses. Unfortunately, the Alaska Airlines offer I wrote about in my "perfect storm" post is no longer available. Here's what I ended up applying for:

1. American Express "old" Blue Cash. No signup bonus, no minimum spend requirement, no annual fee. 5% cash back at drug stores after spending $6,500 each year. Result: immediate online approval, $1,000 credit limit.
2. Citi Platinum Select / AAdvantage World MasterCard. 50,000 miles after spending $3,000 within the first 3 months. Result: approval after calling the "status check" number, (888) 201-4523, $3,000 credit limit.
3. Barclaycard US Airways MasterCard. 35,000 miles after first purchase. Result: immediate online approval, $1,000 credit limit.
4. Chase British Airways Visa Signature. 100,000 miles after spending $20,000 within 12 months. Result: application pending. I called into the application status line today, (800)-436-7927, but have still been unable to get a decision or shuffle my credit limits around to secure approval. I'll wait and call back on Monday.

As you can see, because this application cycle was impromptu, I didn't have a chance to massage my credit by making sure all my credit card statements closed with a low or zero balance. My day-to-day high utilization rate negatively impacts my score between application cycles, making me look less credit-worthy (even though I always pay off my balances in full).

However, this doesn't bother me. I intend to only use the US Airways card once, to secure the signup bonus, and spend just $3,000 on the American Airlines card, so those low credit limits aren't a problem.

The $1,000 credit limit on the Blue Cash card, on the other hand, would be an issue except for the fact that American Express makes it easy to shuffle your credit limits between cards, so I'll be able to move all but a small part of my $10,000 Hilton HHonors American Express credit limit over to my new Blue Cash card (this is only possible within personal and business cards, not between them). That'll give me more than enough room to manufacture spend on my new 5% cash back card.

All in all, I'm pleased with the results of this application cycle, and hopefully I'll get approval for my British Airways application in the next day or two, possibly after moving part of my credit limit over from my Chase Sapphire Preferred card.